Do you have an undoubtedly excellent product on your hands, but you’re not quite ready to rent a store? Or perhaps you’re a store owner looking to offer your customers more?
Whichever camp you’re in, a consignment agreement may be exactly what you need to boost profits, catapult your market penetration and offer your customers greater value.
What is Consignment?
To better wrap your head around consignment, let’s unpack where the word comes from.
The word consignment comes from the French word “consigner,” which means “to deposit.” If you think about it like that, it makes sense that consignment has a lot to do with depositing or dropping off products.
Consignment is a business agreement where a business (the consigner) drops off its products with a store, seller, or retailer (the consignee) to stock on its shelves.
Once the product has sold, the consignee gives a percentage of the sale to the consigner. In other words, the store that holds the products pays the person who owns the products.
How Does Consignment Work?
Consignment works through split negotiation. This agreement can go a few ways depending on the product and the store in question. The consigner will usually approach a shop and pitch their product to them. Alternatively, if a store identifies a product that suits them and they believe it would sell well, they could approach the consignee and make an offer.
For the most part, consignment arrangements will work with a 50/50 split, but 40/60 and 60/40 splits are also common.
Consignment Example
You sell hand-made packaging-free hair products, and so far, you only make online sales. This is a pity because your product is beautiful, and you’ve noticed that sales are higher when customers see the product in real life.
You identify a store that sells other organic and plastic-free products, they think you’re a class act, and you both decide to enter into a consignment agreement.
You send them 50 units to place on their shelves and agree to do a 50/50 split. Your product goes for R150 at retail price. Within the first month, 40 units have been sold, which amounts to R6000. Because you have arranged a 50/50 split, once the products are sold, you receive R3000 from the consigner, and they keep the other R3000.
Making Consignment “Click”
Your consignment relationship should be an example of symbiotic harmony in action. Both parties should benefit from the deal.
For instance, let’s use the packaging-free all-natural shampoo again. You wouldn’t waste your time and money hoping to sell at a fast-fashion store that doesn’t support environmentally friendly standards. Your customers aren’t there, and it does not align with your brand ethics.
You need to think about how your product will fall in line with the store, and how it’s going to stand out. Even if you find a store that promotes eco-friendly options, you don’t want to be the tenth shampoo brand that they have on the shelves.
For retailers, it’s also important to find products that create a seamless theme throughout their store (unless the whole concept of the store is meant to be chaotic). You also want to vet the products you sell and work with trustworthy vendors.
Selling goods on consignment works best when the fit is right – so rather take the time to find which store will represent your product best and which product will best represent your store.
Make your business click: 8 Things to Look for in a Business Partner
Common Products Sold Through Consignment
Selling on consignment can work for any business, provided you sell actual products, and you’re not a service-based business. Some common products sold on consignment include:
There isn’t a limit on what can and cannot be sold on consignment so long as your products can physically exist on a store shelf.
The Advantages and Disadvantages of Consignment
The great thing about consignment is that it is a mutually beneficial agreement – it benefits both parties if done correctly!
Advantages
For the Consignee
- Stores don’t need to pay upfront for inventory and only pay after a sale has been made.
- Diverse stock that brings new customers through their doors.
- Retailers can test out a product without investing a huge amount of money in the stock.
- Consignment inventory is easily replenished - as it goes, new stock comes in.
For the Consigner
- Suppliers have the opportunity to test whether their product sells well in stores without providing huge amounts of stock.
- Your product gets extra face time with the customer.
- Seasonal stocking.
- No shipping or packaging costs.
- All the benefits of being on the shelves, minus the rent.
Disadvantages
For the Consignee
- Pressure to sell products and provide consigners with an income.
- May be responsible for unsold products (which could come with disposal fees).
For the Consigner
- Lack of freedom over how the product is presented.
- Consignees may not be able to answer customer questions surrounding the product.
- Money is only received once products are sold, which can be tricky to predict at first.
Making the Most of Selling on Consignment
1. Educate the Seller
As a business owner, you know your product from back to front. It’s imperative that the staff selling your product know as much about the brand as possible. How did you start? What is your brand story? How does the product work? Spend some time with store staff to make sure all your bases are covered in order to secure the sale.
2. Create Packaging That Pops
Remember, your product may not have centre stage. It will be placed amongst other products, and it’s your job to make sure it doesn’t get lost in the clutter.
If you’ve predominantly been selling online, packaging may be simpler. You can photograph your product and send it off individually, but it may not translate as well in an aisle or on a shelf. Think about tweaking your packaging to suit the outside world. It will make all the difference.
If you need a gentle push in the right direction, this one’s for you: A Guide to Branding a Small Business
3. Spread The Word
Don’t wait for people to stumble across your product. Wouldn’t you rather have people seek it out? Send out mailers, newsletters, and post on your socials about where your products can be found in store.
It’s possible that you will be able to create collateral to go in-store, depending on the agreement you have with the consignee. Posters, brochures, and in-store radio ads or announcements are excellent ways to let shoppers know where to find you.
To End Off
Collaboration is a beautiful way of bringing small businesses and South African entrepreneurs together to showcase their hard work.
It’s for the retailers trying to boost their hustle and bring exciting things to their community. For the full-time hustle entrepreneurs who are testing, sewing, branding, launching, relaunching, and finally bringing their project to the people.
When businesses work together to do better, incredible things tend to happen.
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